“We work with governments to understand what drives economic, social and environmental change. We measure productivity and global flows of trade and investment. We analyse and compare data to predict future trends. We set international standards on a wide range of things, from agriculture and tax to the safety of chemicals.”
The reality is that economists, and their theories have been wrong. Most prognosticators simply double-down on the theories that got them a seat in the ivory tower, but increasingly, there are some who are challenging the orthodoxy.
Tomas Pikkety is the poster-child but there are others and, today, Greg Ip looks at Robert Gordon and his book “The Rise and Fall of American Growth.”
“Economic growth is not a steady process that creates economic advance at a regular pace, century after century,” Mr. Gordon notes. Annual per-capita growth from AD 1 to 1820, he notes, was close to zero.
Economists are thus wrong to assume productivity growth will eventually revert to the more rapid mean of the special century, even if smartphones, artificial intelligence and robotics deliver everything their advocates promise. Mr. Gordon predicts productivity will grow a little over 1% per year through 2040, better than the past five years but less than half the rate from 1948 to 1970. If inequality continues to rise, that implies almost no growth in the typical family’s income.
It’s not a heartening message, but at least it’s being heard.”
A narrowing output gap and approaching monetary tightening are reducing the US economy’s ability grow at around 3% a year, Fitch Ratings says. We cut our outlook for US growth to 2.2% in 2015 and 2.5% in each of 2016 and 2017 in our latest quarterly “Global Economic Outlook”, published on Tuesday, down from our previous forecasts of 3.1% for 2015 and 3.0% for 2016.
Our lower full-year growth forecast for 2015 follows a weak first quarter in which the US economy contracted 0.2% on an annualised basis. Temporary factors such as the West Coast port strike and very cold weather on the East Coast were partly to blame. Without these, growth can bounce back in 2H15 as the labour market continues to strengthen. The economy created 223,000 jobs in June and the unemployment rate fell to 5.3%, although average hourly earnings did not grow.
The US is growing faster than the eurozone and many other high-income countries, but a number of supply-side and demand-side factors mean its economy is unlikely to sustain 3% annual growth through 2016-2017. The recovery from the recent recession has been more sluggish than in previous episodes. The labour force is growing more slowly than in previous decades due to demographic changes.
Consumer spending growth is picking up but still lags behind the improving labour market, rising household wealth and confidence indicators, and consumers appear more inclined to save since the financial crisis. The housing sector is growing modestly. A stronger dollar and slower growth in trading partners undermines export performance. Higher bank lending has partly been directed towards M&A rather than greenfield investment. Productivity-enhancing public investment is also low.
Not only is the supply of capital and labour growing more slowly, but Bureau of Labor Statistics data this week showed total factor productivity increased at an annual rate of 0.8% last year – lower than the 1.4% average in 1995-2007. Slower productivity growth combined with temporary shocks such as those in 1Q15 means annual US GDP growth has averaged just 2.2% since 2010. As the output gap gradually narrows, growth rates should converge with potential output at around this level.
Eleven trillion dollars: that’s how much of so-called Quantitative Easing the world’s central banks have done since the 2008 crisis. To put that in perspective, with eleven trillion dollars you could pay off pretty much all U.S. household debt – all mortgages, all car and student loans, credit cards – you name it.
So what did the global economy get for $11,000,000,000,000 in QE?
Following a post-recession pop, we got collapsing world trade growth, and that’s even with prices falling over the past three to four years.
It discusses ways we can boost our productivity, not just at work but in our non-market activities as well. Working hard is less efficient than working smart. The information itself is entertainingly delivered in a about 3 1/4 minutes. How efficient.
Whenever I meet investors around the world, the most pressing question is: what happened to India? This was an economy that grew at nearly eight per cent for an entire decade (2003-2013). So much was expected from it. It was supposed to prove to the world that even a noisy, chaotic and populous democracy could deliver high growth. It was seen as the answer to China and its authoritarian economic model. Though everyone knew that India had certain institutional flaws, they were willing to cut it some slack in the hope that the country would succeed.
Given all the hope and hype, it’s not surprising that there is now so much disappointment with India. In meetings, I now have to defend our growth record and explain why five per cent growth is not the new normal for India. Eighteen months ago, we would use charts explaining how India was about eight or ten years behind China on most economic indicators, and thus was poised for an acceleration in demand across product categories. Today, however, most investors refuse to acknowledge India as a competitor to China. Any comparison is rubbished because we are seen as being incapable of execution.
To many investors, India does not seem to have a long-term strategic game plan, and the lurch towards populism is scary. Everyone is convinced that this is a largely self-inflicted problem. The great demographic dividend is seen by most as an upcoming demographic disaster, given India’s inability to provide skills training to its people or to create jobs. Read More
Despite exuberance at European and Chinese PMIs, the US clean shirt just skidded with a miss. Against expectatins of a high YTD 54.0 print, PMI posted 52.8 – its lowest in 3 months and falling for the second month in a row. New orders fell at the slowest pace since April (boding ill for durable goods) and the employment sub-index grew at the slowest pace in 3 months(suggesting payrolls will not hold up well). Of course, as Markit notes, bad news is good news “as far as policymakers are concerned there are some worrying signals in relation to the sector’s growth momentum, which vindicate the Fed’s decision to hold off on tapering its asset purchases.”
IMD, a well-known business school in Lausanne, Switzerland, has raised Japan three places in its ranking of international competitiveness as a result of Prime Minister Shinzo Abe’s expansionary economic policies
In IMD’s 2013 World Competitiveness Yearbook released Thursday, Japan climbed to 24th place, up from 27th in 2012.
“Abenomics” is a combination of monetary easing, fiscal spending and longer term economic reforms aimed at revitalize the economy. IMD said Abenomics seems to be making the Japanese economy more dynamic. Read More
Following Friday’s mediocre US GDP report, concerns are rising that the US economy is in danger of backsliding.
Europe, meanwhile, is in depression, and there are major concerns that China is sputtering out.
A bunch of big questions should be answered this week, as we get an avalanche of economic data.
The first week of any month is always big, and so this Wednesday (May 1) through Friday will be jam packed with fresh ISM reports (for Korea, China, Europe, and the US), initial jobless claims, and of course the big Non-Farm Payrolls report on Friday.
Monday and Tuesday will also be big, as we get Personal Income and Spending, Chicago PMI, Case-Shiller, and Consumer Confidence.
Other big events this week include auto sales, the ADP jobs report, and FOMC decision, productivity, the trade balance, and construction spending.
By the end of Friday we should know a lot more about the economy.
It should be a lot of fun, and we’ll be covering all of it live.